As Bank Loans Dry Up in Spain, Small and Medium Businesses Fight for Life

Ivan Moreno said his skateboard business in Zaragoza is being strangled by a lack of credit.Credit
Marta Ramoneda for The New York Times

ZARAGOZA, Spain — There was a time when Ivan Moreno, 34, felt he was on the verge of something big — when it seemed right to settle his rapidly expanding skateboard company into a modern warehouse on the outskirts of this city, when orders piled up from stores around the world.

Those days are gone.

Like the owners of many small and medium-size companies in Spain, he is just struggling to stay alive now, a victim, he says, of the vast restructuring of Spain’s banking sector after the collapse of the real estate bubble in 2008. Mr. Moreno said his bankers closed his roughly $250,000 credit line step by step, imposing harsh repayment plans and effectively strangling his young business.

“So many times, I went to the bank and said, ‘What did I do wrong?’ ” said Mr. Moreno, who recently had to lay off almost all of his employees, including a childhood friend. “But they just said they wanted their money back.”

Experts say that what happened to Mr. Moreno is happening to small companies all over Spain, as many of the regional savings banks that such businesses once relied on are being eliminated or swallowed up, in a series of steps intended to deal with the hundreds of billions of dollars in bad loans from the real estate meltdown.

Whether the strategy is working remains an open question. Moody’s recently downgraded more than a dozen Spanish banks, including the two largest, and on Friday, a major bank warned that it would need an additional $23.9 billion in aid, far beyond what the government estimated when it seized the bank this month.

But experts say there is little doubt that the loss of credit is hurting smaller businesses, contributing to Spain’s troubles by raising unemployment and cutting tax revenues, making it harder to bring its budget deficit down to manageable levels. The credit loss hits particularly hard in Spain, where more than 60 percent of the economy, and 80 percent of the jobs, come from small and medium-size companies. More than 500,000 small businesses have shut down in the last few years.

Mr. Moreno said that one year his company, Nomad Skateboards, sold more than $1.3 million worth of skateboards and accessories in 20 countries. These days he is looking for a buyer for his warehouse and trimming his product line to just skateboards and T-shirts. “If you cannot buy, you cannot sell,” he said. “If you cannot sell, you cannot make a profit.”

Many are done in by their inability to get the credit they need to run day-to-day operations. “The savings banks that these people got their loans from don’t even exist anymore,” said Alfonso García Mora, director general of AFI, a Madrid-based financial consultancy. “Those banks have been taken over by bigger banks that aren’t interested in these kinds of loans. Or they have been taken over by banks in another region, where the local businessman is not known.”

Such changes might be felt for years to come.

“We have lost that local knowledge,” Mr. Mora said, “and it was crucial to deciding whether or not to make a loan. It is a problem we will have for a long time.”

A few years ago, Spain had 45 regional savings banks. Today, there are only 13 and even their future is uncertain. Some have been merged with other banks and others have been taken over by bigger, more robust banks as part of efforts to reassure global markets.

Many business owners say the regional bankers they worked with, sometimes for decades, may still be sitting in their chairs at the local office. But they no longer have the power to approve loans, even if they wanted to, and usually they are just delivering bad news.

Video

Spain’s Credit Crunch

Because of the financial crisis, small businesses in Spain have been forced by disappearing credit lines to shut down or downsize.

That means trouble in a country with 25 percent unemployment and no signs of an economic recovery. The warehouse district that is home to Mr. Moreno’s company is virtually deserted these days. Charo Albás Vives, who owns a children’s shoe company, Colores, is in similar straits. Her bank withdrew her $65,000 credit line two years ago.

At first, she said, the bank wanted her to return only half of it. But after she managed that, the bank told her that she would have to repay the rest, starting immediately.

Ms. Albas, who has six children, said the payments forced her family to make all sorts of economies. “We stopped going to the good grocery store,” she said. “We cut back on everything, even the heating.”

It also meant that she could no longer afford the brightly colored inventory her stores were famous for. “We concentrate on white and blue now,” she said.

She has survived, she said, thanks to loans from her family, though 13 of 25 stores have closed.

Before the crisis, experts say, it was probably too easy to get loans; banks operated with too little equity and lent too much. Regional banks, in fact, made many of the most problematic loans to real estate developers. Now, as the banking sector struggles for survival, lending to private companies and households has dropped precipitously.

“The cuts in credit have been so abrupt that some businesses not only lost specific projects they were working on,” said Carlos Ruiz Fonseca, the director of economy and innovation at Cepyme, Spain’s association of small and medium-size companies. “Some companies have just gone out of business.”

Despite the mergers and injections of capital from the banking bailout and reconstruction program begun by the government in 2009, there has been no improvement in lending. According to the Bank of Spain, credit to the private sector fell in March, as it has virtually every month since the fall of 2009. Some businesses say they do not even bother asking for loans anymore.

Getting loans to start a company may be even harder. “How are you going to get new businesses going if there is no one willing to take a risk and lend you money?” said Edward Hugh, an economic guru who blogs on Spain’s economy. “The problems become circular and self-perpetuating.”

Banking officials agree that the restructuring has made credit harder to come by, but they say they can do little about it. “The banks here are asked to provision more capital to guard against loan losses,” an official from CECA, the Spanish savings bank association, said. “And if they are asked for more capital, then the possibilities of giving credit are limited.”

Some companies have found innovative ways to do business without credit. Emilio Díaz, for instance, who founded a bus and train window factory in Zaragoza in 1969, said that rather than borrow to cover the cost of glass for a big contract, he recently made an agreement with his supplier to pay for the glass after he is paid for the windows.

Other companies have found that doing business with several different banks helps. Olga Rioja Navarro, the financial director of Lacasa, a chocolate manufacturer that has lost 20 percent of its credit line, says she juggles her business among nearly a dozen banks. These days she says the banks are more likely to give the company a loan against a specific unpaid invoice, for instance, than for day-to-day expenses.

Mr. Moreno and his partner, Chus Castejón, hope they can find a private investor. But they fear that their brand will lose hard-to-reclaim momentum in the fashion-conscious world of skateboarding. “Sometimes you have your moment, and then you can’t get it back,” Mr. Castejón said. “And that makes me so angry.”

Recently Mr. Moreno and his wife invited some friends for dinner. The gathering was hard for Sergio Eltoro, 34, who grew up with Mr. Moreno and worked for him for nearly 10 years before being laid off recently. He loved his job and now finds himself facing questions he thought were settled, like, “What am I going to do with myself tomorrow?”

Rachel Chaundler contributed reporting.

A version of this article appears in print on May 27, 2012, on page A6 of the New York edition with the headline: As Bank Loans Dry Up in Spain, Small and Medium Businesses Fight for Life. Order Reprints|Today's Paper|Subscribe